First Mover Asia: Crypto’s institutional future may be incompatible with Litecoin’s privacy protecting features

Major South Korean exchanges are delisting the token after privacy upgrades involving the MimbleWimble protocol designed to make transactions confidential and virtually untraceable.

Good morning. Here’s what’s happening:

Prices: Bitcoin and most major altcoins spent much of Wednesday in the red.

Insights: South Korean exchanges are delisting litecoin.

Technician's take (Editor's Note): Technician's Take is on hiatus today.

Prices

Bitcoin (BTC): $30,285 -2.5%

Ether (ETH): $1,798 -0.01%

Biggest Gainers

Asset	Ticker	Returns	DACS Sector
Algorand	ALGO	+4.4%	Smart Contract Platform
Cardano	ADA	+4.2%	Smart Contract Platform
Chainlink	LINK	+2.1%	Computing

Biggest Losers

Asset	Ticker	Returns	DACS Sector
Cosmos	ATOM	−4.9%	Smart Contract Platform
Internet Computer	ICP	−4.2%	Computing
Litecoin	LTC	−3.1%	Currency

Bitcoin, Ether and Most Other Major Cryptos See Red

Home, home in the range...

Bitcoin remained close to the middle of the price range it's been occupying for much of the past month since the collapse of the TerraUSD stablecoin (UST) and the LUNA token that supported it.

The largest cryptocurrency by market capitalization was recently trading at $30,300, down roughly 2.5% over the past 24 hours. Ether, the second largest crypto by market cap, was changing hands at about $1,800, about flat over the same period. Most other major cryptos spent much of their day in the red with DOT and AVAX recently down over 3% and SOL declining more than 2%. LINK was among the winners, rising approximately 2%.

Crypto prices, which have largely correlated to stocks, dovetailed again with major indices. The S&P 500 fell about 1%, while the Dow Jones Industrial Average and tech heavy Nasdaq declined a little bit less as investors continued their watchful waiting for clearer indications on the direction of inflation and the economy.

This weeks signs have been decidedly negative with the World Bank cutting its forecast for economic growth this year from 4.1% to 2.9% amid fears of stagflation – a toxic combination of slowing growth and rising prices – pessimistic inflationary comments by U.S. Treasury Secretary Janet Yellen at a Senate Finance Committee hearing, and a profits warning by Target that sent retail stock prices tumbling Tuesday. Meanwhile, the fallout from Russia's invasion of Ukraine continued with the price of Brent crude oil, a widely regarded measure of energy markets, soaring above $122, up nearly 60% since the start of the year.

Cryptos have struggled against this wider backdrop and because of brewing uncertainties in the space, including not only the Terra debacle but regulatory uncertainty and problems with other a number of protocols.

"BTC fundamentals are intact, but without regulatory clarity, which is coming, we may stay rangebound, "3iQ Digital Asset's Head of Research Mark Connors wrote to CoinDesk.

Connors also noted the failure of the ether 2.0 migration as a test net to occur. "In our opinion, proof of stake may be a 2023 reality, so not constructive for ether," he wrote.

Markets

S&P 500: 4,115 -1%

DJIA: 32,910 -0.8%

Nasdaq: 12,086 -0.7%

Gold: $1,852 -0.03%

Insights

Major Korean Exchanges Are Delisting Litecoin

The last time Litecoin was relevant was when it was the subject of a fake news release about a partnership with Walmart.

But Litecoin finds itself in the news again as major Korean exchanges are delisting its LTC token because of privacy upgrades involving the MimbleWimble protocol, designed to make transactions confidential and virtually untraceable.

Korea’s largest exchanges cite the nation's law on the "Reporting and Use of Specific Financial Transaction Information" as the reason they need to de-list the tokens, but this isn't a Korea-specific thing. Korea's law was designed to align with the Financial Action Task Force's (FATF) travel rule, a set of anti-money laundering standards adopted by regulators and financial institutions worldwide that requires the collection of customer data around transactions. Every major economy understands this and has implemented similar rules.

Rules like this are the only reason institutions can even think about adopting crypto. For institutions, compliance is key, and they need to stay miles away from anything that even smells like money laundering.

Many major banks know what happens if they get caught: fines in the billions. HSBC, Standard Chartered and others have all been hit with mega-fines for insufficient anti-money laundering controls.

Crypto’s future is in institutional adoption, but there are certain things that just won’t work. While financial privacy is important and exists in crypto via the difficulty in identifying owners being blockchain wallets, financial anonymity is where the line is drawn. Making it impossible to track transactions ensures that institutions must separate themselves from the project and play no part in it.

Certainly there are other protocols out there that are designed to obfuscate transactions. Tornado Cash comes to mind, and is often used in the same sentence as “stolen funds.” But even Tornado Cash doesn’t completely mix anonymity with freedom to transact: Wallets sanctioned by OFAC are blocked. Experts who have previously spoken to CoinDesk have said that without this happening, OFAC would be actively targeting the protocol.

Litecoin mixing anonymity with an absence of such controls is going to be a headache for exchanges that list the LTC token. Korean exchanges are said to be particularly sensitive to regulatory affairs, so it’s natural that they would delist it first. But others are sure to follow. Perhaps Binance, battling a reputational challenge as a haven for cybercrooks, will be next?

Important events

Consensus 2022 by CoinDesk

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